Question

Required information (The following information applies to the questions displayed below.) The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. Nelson company uses a perpetual inventory system. It categorizes the following accounts as selling expenses: Depreciation Expense-Store Equipment, Sales Salaries Expense, Rent Expense-Selling Space, Store Supplies Expense, and Advertising Expense. It categorizes the remaining expenses as general and administrative. NELSON COMPANY Unadjusted Trial Balance January 31 Credit Debit $ 22,150 12,500 5,500 2,600 42,600 $ 17,050 14,000 5,000 34,000 2,150 116,600 Cash Merchandise inventory Store supplies Prepaid insurance Store equipment Accumulated depreciation-store equipment Accounts payable Common stock Retained earnings Dividends Sales Sales discounts Sales returns and allowances Cost of goods sold Depreciation expense-Store equipment Sales salaries expense Office salaries expense Insurance expense Rent expense-Selling space Rent expense-Office space Store supplies expense Advertising expense Totals 2,050 2,000 38,000 0 15,050 15,050 8,500 8,500 0 10,000 $186,650 $186,650 Additional Information: a. Store supplies still available at fiscal year-end amount to $2,350. b. Expired insurance, an administrative expense, is $1,450 for the fiscal year. c. Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year. d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,300 of inventory is still available at fiscal year-end.

Answer 1

1)

Transactions	Account titles and explanation	Debit	Credit
a.	Store supplies expense ($5500-2350)	$3150
	Store supplies		$3150
	(To record store supplies expense)
b.	Insurance expense	$1450
	Prepaid insurance		$1450
	(To record prepaid insurance expired)
c.	Depreciation expense- Store equipment	$1600
	Accumulated depreciation- Store equipment		$1600
	(To record depreciation expense)
d.	Cost of goods sold	$2200
	Merchandise inventory ($12500-10300)		$2200
	(To record shrinkage of inventory)

2)

NELSON COMPANY
Income Statement
For Year Ended January 31
Sales		$116600
Less: Sales discounts	2050
Less: Sales returns and allowances	2000	4050
Net sales		112550
Cost of goods sold ($38000+2200)		40200
Gross profit		72350
Expenses:
Selling expenses
Depreciation expense- Store equipment	1600
Sales salaries expense	15050
Rent expense- Selling space	8500
Store supplies expense	3150
Advertising expense	10000
Total selling expenses		38300
General and administrative expenses
Office salaries expense	15050
Insurance expense	1450
Rent expense- Office space	8500
Total general and administrative expenses		25000
Total expenses		63300
Net income		$9050

3)

NELSON COMPANY
Income Statement
For Year Ended January 31
Net sales		$112550
Expenses:
Cost of goods sold ($38000+2200)	40200
Selling expenses	38300
General and administrative expenses	25000
Total expenses		103500
Net income		$9050